October 20, 2019

The Fed’s New Message: The Economy Can Get a Lot Better for Workers

So what has changed? The simplest answer is: the data.

It may have been plausible two or three years ago to think it was only a matter of time before a tight job market translated into more rapidly rising compensation for workers, and, in turn, broader inflation. But it hasn’t happened, or at least not remotely to the degree that those models predicted.

It probably also helps that the Fed is now under pressure, from both conservatives and liberals, to increase economic growth. That gives Mr. Powell room to speak of improving conditions for workers without coming across as partisan.

Trump administration officials, particularly the National Economic Council chief, Larry Kudlow, have argued that there is no reason to think a stronger job market will stoke inflation. And the president has criticized Mr. Powell and the Fed for last year’s interest rate increases.

The shift also comes after years in which a handful of voices in the relative wilderness, both inside and outside the central bank, have been building the intellectual case for the view that Mr. Powell embraced Wednesday.

Internally, the Minneapolis Fed president, Neel Kashkari, has made arguments along these lines for years.

Outside the central bank, the activist group Fed Up has contended since its formation in 2014 that the economy was not as close to health as many Fed officials assumed, and that the Fed should forestall interest rate increases until there was more widespread prosperity.

A range of economists has also made these arguments, though often not the boldface names of the profession, but younger academics less tethered to an orthodoxy that dates back decades.

Article source: https://www.nytimes.com/2019/07/11/upshot/fed-reversal-economy-workers-powell.html?emc=rss&partner=rss

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